Industry treads carefully on collusion egg shells

Are the general rates increases (GRIs) implemented by shipping lines a collusive practice? According to certain of the world’s shipper bodies, GRIs – which seem to come in at much the same time and at similar levels – could be regarded as collusion by the carriers. And the legal definition of collusion is pretty well all-embracing, according to Nick Altini, a director with DLA Cliffe Dekker Hofmeyr, who said that a hard and fast rule was to never talk about prices, cost information, marketing strategies, budgets and/or business plans, agreements or even terms and conditions with competitors. “And that includes socially,” he added. “It is very easy to cross the line. And just being present at the time of a discussion can be considered collusion at times.” Grindrod’s Andrew Thomas, who was formerly MD of the group’s Ocean Africa Container Line (OACL), agreed. Shipping executives are keenly conscious of never discussing prices or rates or anything even vaguely related to them with people outside their line, he told FTW. “For example, when I was appointed to OACL I signed a personal indemnity that I wouldn’t discuss anything about prices with competitive line executives.” The penalty for doing so, he added, was immediate dismissal. The lines themselves are highly sensitive about the matter because of the enormous fines and penalties that would be levied on them if found guilty of such an indiscretion. “It’s just not worth it for them,” Thomas said. Tony Norton, a senior partner with ENS, and the legal adviser to the lines in SA for a number of decades, expressed similar sentiments. “The lines are ultrasensitive about the possibility of collusion,” he said. “There would be absolutely no agreement between the lines on such an issue as GRIs.” He described it as “in the nature of the market” if one line decided the market could bear a rates increase, and other lines followed. “That’s common sense,” he added. “Similarly, it only takes one line to make a significant reduction of their rates and other lines will follow.” Norton also highlighted an example of the lines’ ultrasensitivity. “At one time,” he told FTW, “we could have all the lines in our rooms to discuss some matter or other. But not now.” FTW also quizzed two neutral maritime lawyers on the subject of GRIs. Andrew Pike, maritime law specialist and partner at legal firm Velden Pike Nichols (VPN), said GRIs were always potentially collusive. “But the lines of course argue that they are linked to freight rates and bunker price increases.” And as the freight rates affect everyone equally and bunker prices likewise all affect everyone at the same time, it is not unreasonable for lines to increase rates by about the same amounts at about the same time, he added. “However, if there is any suggestion that they are benchmarking off each other, or discussing with each other the amount of the increase, then that is potentially collusive and opens them up to a Competition Commission enquiry.” And such a matter has already happened. In 2003 the Competition Commission considered whether it had jurisdiction to consider exemptions from collusive practices in shipping, set out in paragraph 19.1.2 of the judgment. “It concluded that it did have jurisdiction,” Pike said. He also noted that, following this finding, CompComm instituted an enquiry into several shipping lines which imposed congestion surcharges at about the same time following the Transnet strike in 2010. “They were trying to show that the lines involved had agreed firstly to impose a surcharge and secondly within a particular range what the amount of the surcharge should be,” said Pike. “The CompCom eventually did not refer it to the Tribunal and therefore must have concluded that there was no collusive behaviour and that a congestion surcharge was an international practice. But it does illustrate the issue.” Said Andrew Robinson, maritime legal specialist and director of legal firm Norton Rose Fulbright (NRF) in SA: “At some stage I suspect that the Competition Commission is going to start investigating the freight industry generally on anticompetitive behaviour. I rather think that there will be wailing and gnashing of teeth when the time comes!” Internationally there has been an increase in investigations in relation to collusive behaviour, including in the freight industry. “NRF completion teams have been involved in a number of these investigations in Europe, North America and elsewhere. So we have had some experience of these things,” said Robinson. “Remember,” he said, “that the powers of the Competition Commission are wide ranging (ask any of the big corporates who have recently fallen under the Tribunal’s microscope about that!) “With regard to GRIs, while similar increases in price at similar times can be evidence of collusion, proof of collusion requires there to be at least a concerted practice between the parties. This does not mean that there must be an overt agreement but there must be evidence of some cooperation or co-ordination between the parties that replaces their independent conduct.” INSERT & CAPTION 1 It is very easy to cross the line. And just being present at the time of a discussion can be considered collusion at times. – Nick Altini INSERT & CAPTION 2 Internationally there has been an increase in investigations in relation to collusive behaviour, including in the freight industry. – Andrew Robinson